Daily ShareChat: Cavalier

By Jenny Ruth

Sunday 26th September 2010

Carpet maker Cavalier produced a solid annual result at the higher end of the company's guidance under trying conditions, says Morningstar analyst Nachi Moghe.

The company reported a 21% rise to $16.6 million in underlying net profit for the year ended June 30, reflecting a second-half recovery.

"This reflects strength in Australia and some improvement in New Zealand, especially from the commercial sector," Moghe says.

"Cavalier's profitability suffered in the first half due to recessionary conditions prevailing in residential markets."

Moghe has raised his net profit forecast for the year ending June 2011 to $18.9 million and is forecasting a $21.2 million result the following year. He has increased his valuation from $2.50 per share to $3.35.

The impact of the Canterbury earthquake on Cavalier is hared to assess, "given that we don't know precisely how many homes would need to be carpeted again," he says.

"What we do know is that there are 100,000 homes that were affected." Some will need only minor repair work while others might need to be completely re-carpeted - Moghe is assuming about 20,000 homes will fall into the latter category. Based on Cavalier's 35% market share, he estimates this will generate about $24.5 million in revenue and $4 million in operating earnings spread evenly between the 2011 and 2012 financial years.

Recommendation: Buy (raised from hold).

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